$56 Trillion — American Net Worth Drops in 2008
Kurt Brouwer October 2nd, 2007
The net worth of Americans is $55,970,300,00, that is, $56 trillion. This number includes all assets minus all liabilities and it includes real estate equity and real estate debt. The data comes from the Federal Reserve Board’s most recent quarterly Flow of Funds report and it covers the first quarter of 2008.
This report covers many pages of statistical information, but the part relevant to this post is to be found on page 105 of the report: R.100 Change in Net Worth of Households and Nonprofit Organizations. This report is not a perfect rendition of household net worth because it includes nonprofit organizations. However, it also does not include unincorporated businesses (proprietorships, partnerships and so on), which represent substantial assets. While not perfect, it is the best we have and I suspect, if anything, in understates true net worth.
The news on this front is a bit downbeat because it shows a decline of $1.7 trillion from last quarter. As of June, 2008, the report gives the net worth of American households as: $55,970,300,000,000. The decrease from the previous quarter was: $1,696,200,000,000.
If you calculate from the year-end result for 2001 through this year’s result for June 30, you get a growth rate of nearly seven percent (6.76%). That is very impressive given what we have been through, including the worst bear market for stocks since World War II, the terrorist attacks of September 11, 2001, a recession and, recently, falling home prices). It is also impressive compared to inflation, which has been moderate throughout this period of time.
Now, you may ask, how can our net worth be going up so steadily if we are not saving any money? After all, we hear about our low or non-existent rate of savings all the time. When you read laments about our ‘low’ savings rate, you should bear in mind that this is a statistical item rather than a commonsense use of the term savings. The U.S. Commerce Department’s Bureau of Economic Analysis (BEA) compiles statistics on savings, but their calculations have little application in the real world in which we live because the BEA’s methodology of calculating savings does not include certain critical components that most of us think of as savings.For example, the BEA’s calculations of income and savings do not include capital gains even though capital gains on stocks, real estate, businesses and other investments are a significant part of what we would consider our savings or wealth. Also, the value of someone’s home equity and retirement plan holdings are also not fully-factored into this calculation of savings, so the published reports of national savings significantly understate the true savings that Americans are making.
I think it is clear that, despite the widespread handwringing over our lack of personal savings, our net worth is moving up nicely. And, this is true despite the fact that we went through a very difficult bear market for stocks from 2000-2002 coupled with a recession and we are now going through a downturn in real estate. So, the next time you hear a politician, a pundit or just your next door neighbor bemoaning our financial status and predicting gloom, doom or worse, just refer back to this statistic on our combined net worth and set him straight.
Here are previous posts on this topic: $29.1 In American Net Worth and $16.4 Trillion in Retirement Accounts
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# 5 Edition: Carnival of Everything Finance
# 5 Edition: Carnival of Everything Finance
Welcome to the October 15, 2007 edition of carnival of everything finance.
We had over 80 really good articles submitted for this edition.
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What does it mean when you say home equity and retirement plan savings are not “fully” factored in. Do these represent part of the totals?
up 15 trillion
adjust for inflation, up 7.5 trillion
adjust for 50% worldwide fall in dollar against say the euro,
up approx 3.25 trillion. in 7 years - 8% overall, 1.1%.yr, overall.
current deflation, 2 trillion in first quarter, estimate 2 trillion lost last half 2007. if next 12 months loses at same rate, 4 more trillion lost by first quarter 2009. adjust as above, 2.25 adjusted trillion lost by end of recession. net 1 trillion gain in real terms since 2001. basically a statistical blip.
basically no change in net worth in last 7 years.
So, let’s see.. Americans have a total net worth of 56 trillion, but how much of that is spoken for in the form of total government debt? And how much of that is still inflated beyond all reality in the form of a housing and real estate bubble that has yet to return firmly to planet earth? And how much is spoken for in the form of ‘unfunded liabilities’ such as Social Security and Medicare? Add in total consumer debt, the cost of the current financial debacle, the cost of american adventures overseas (most of that is off-budget) and stir.
We’re bankrupt.. but it hasn’t come home to roost and the rest of the world hasn’t stopped buying our worthless paper.. yet.
The net worth of Americans is certainly dropping right now. However, it is a net figure (asset minus liabilities) after all consumer debt and real estate debt.
As to government debt, that’s a bit north of $10 trillion right now, but it’s hard to calculate because of all the government bailouts. However, government debt does not have much to do with personal net worth. All governments have debt and our government debt is about average compared to our GDP.
Medicare and Social Security are unfunded to some extent, but those liabilities don’t have much to do with individuals. It is possible that benefits will be cut or taxes increased at some point in the future, but again that is hypothetical.
The current financial workout or bailout is likely to cost less than $1 trillion, probably considerably less, so it should not have a huge impact on personal net worth. Haircut net worth to $55 trillion if you like, but we’re certainly not bankrupt. And, there is one factor you have not considered at all, which is all the assets owned by our government. Debt is an issue, but the other side of the balance sheet is pretty robust as well.
Mr. Brouwer,
I’m sorry to tell you but the credit crisis is already at $5 trillion in bailout monies. And here you are thinking it will be considerably less than $1 trillion. I estimate it to be $10 trillion will all done, some 10 times what you think.
Wake up — this post was written last year so the bailout was not in existence then. Also, government debt, which is what the bailout is, has no direct correlation to personal net worth.